GENERAL  -  CARS
 
 

Car financing

Remember to put on your financial thinking cap: If you have set aside $10,000 for a car and have over $8,000 worth of credit card debt, your best option is to pay off your high-interest credit card debt, put the remaining money toward a down payment on the car, and take out a loan with the lowest possible financing rate available - which will be way less than your credit card interest rate!

If you can’t pay cash, try to increase the size of your down payment. That way you will borrow less and so pay less interest (which isn’t tax deductible unless you use the car in a business). If paying for the car up front and outright - or for a good chunk of it - is not within your means, you’re in the majority. But that doesn’t mean car loans must be a permanent affliction. But in the meantime, you’ll have to arrange for financing. A word to the wise: The auto dealer is probably not the best place to get a car loan. Today there seem to be as many different financing options as there are different models of cars.

Car loans. The most common financing option is, of course, a car loan. Car loans come in many different forms - your bank, credit union, and auto dealership are likely to have at least half a dozen different types with differing terms and interest rates.

New car loan rates should always be lower than used car loan rates. (If not, then look elsewhere for a more reasonable deal.).  But just because new car loan rates are lower doesn't mean you should buy a new car. It will cost you a lot less to buy a $7,000 used car at 12 percent interest than a $20,000 new car at 9 percent interest. Often, credit unions beat the best bank rates. If you can take advantage of such a deal, why go to a bank?

Discounts, rebates, incentives. They're out there, but you have to track them down. (They don't call it bargain-hunting for nothing!) Wrestling the pertinent information about discounts, rebates, and factory-to-dealer incentives out of your salesperson might qualify you for a World Wrestling Federation title, but it's worth it. Thousands of dollars can be at stake -- although $500 to $1,500 is the norm.

Ask what, if any discounts are available on the car you want to buy. Discounts can be from the manufacturer or the dealer, and these may be either specific or spontaneous. A discount may be an amount subtracted from the gross or net cost of the car, or it may be discounted from a range of options that you might be inclined to buy. Another kind of discount is purchasing the floor model.

Rebates come directly from the manufacturer to you. They are the car seller's equivalent of coupons. You buy the product, send in your sales slip, and receive several hundred dollars or more back.

Factory-to-dealer incentives usually increase toward the end of the year because the manufacturer wants to help the dealer clear space on his or her lot for the new model year. But be wary of incentives. Many are used to lower the discount that the dealer would otherwise have given you from the list price.

Trade in allowance. This is the amount of money the dealer "gives" you for your old car. This amount is subtracted from the purchase price of your new car. As a general rule, if your old car is in relatively good condition, you'll get less money by trading it in than you would by selling it yourself. On the other hand, if your car is a wreck, some dealers will give you more than you could ever hope to sell it for as an incentive for you to buy your new car from them.

Warning: Negotiate a deal on the car you want before you mention that you have a possible trade-in. The reason is that you may get the same amount off prior to introducing the trade-in as you would have if you mentioned the trade-in up front. This way, you may be able to reduce the dealer's "lowest offer" substantially.

Packaged options and service warranties. Why let someone tell you what you want and then charge you for it? That's what packaged options amount to. You don't need an eight-speaker stereo when four speakers drive you wild. You don't need a moon roof unless you're Count Dracula. And you certainly don't need to pay for those two items simply to get the free fog lights that make the package a "deal." The same goes for those ridiculous service warranties. You'd be far better off opening up a savings account and putting a small monthly amount into it for pending car repairs. Remember, it's better to have a roof over your head at night than a sunroof in your car by day.

Leasing

Advantages and Disadvantages. Leases can reduce the hassle of acquiring and maintaining a car (some come with service plans), and you don't have to worry about selling it at the end of the lease. On the other hand, it's safe to say that leasing is almost always more expensive than owning. In my opinion, it also encourages people to trade in their cars too soon. Often you must make a substantial "deposit," sometimes as much as 25 percent of the cost of the car, in order to start a lease plan. There are often penalty fees, too, if you need to leave the lease early. Another hidden cost of leasing lies in the "excessive wear and tear" clause, which states that you will be charged extra for damage to the vehicle. Make sure that those "damages" are specified in writing. Otherwise a coffee stain on the back seat might end up costing you.